Excerpt from CoStar
On earnings calls with analysts, hotel company executives are expected to have a lot of positive things to say about leisure and even some group demand, but the timing and scope of the return of business travel continues to be a big question facing the industry.
Analysts who follow the industry will be listening on earnings calls this quarter for optimism from hotel company executives regarding the continued strength of leisure travel demand, but also for some indication of a pickup in corporate and group bookings.
Michael Bellisario, director and senior research analyst at financial services firm Baird, said the resilience of leisure travel in the U.S., beyond the typical high season for vacationers, has carried hotels as the industry waits for business travelers to book again at pre-pandemic levels.
Though business for the industry overall has slowed down seasonally, several leisure-focused markets continue to reach or surpass 2019 levels for occupancy and rates.
“I think that bodes well for momentum into February, March, April leisure travel season and hopefully people get back to the office,” he said.
Rising COVID-19 cases have a negative impact on business travel, as companies delay return-to-office plans, but Bellisario said the prevailing view is that the omicron variant of the virus is milder than the delta variant was, and thus will have a less-prolonged effect on the economy.
The timing of a rise in omicron cases over the holidays made it difficult to distinguish what effect it had on group and business travel, he said. There weren’t many cancellations, because there wasn’t much to cancel. It wasn’t conference season or business travel season like it was in the fall with the delta variant.
C. Patrick Scholes, managing director of lodging and experiential leisure equity research for Truist Securities Group, said the booking window for business travel is about 12 days, so it’s difficult to say how much the new variant will affect the segment beyond February.
Leisure demand continues to be steady with some weakness among travelers 55 years and older, he said. Starting in April, however, hotels will run into some difficult year-over-year comparisons.
“It’s going to be hard, at least from some of the leisure-centric markets and certainly economy hotels, to show from April onward much year-over-year growth,” he said.
Rich Hightower, managing director at Evercore ISI, said much of leisure travel demand surge can be attributed directly to a rise in personal savings and disposable income during the pandemic, and as spending habits normalize, that demand could drop in tandem.
“If savings levels are kind of back to where they were and people sort of normalize on their spending habits and they’ve gotten their revenge travel out of the way, I wonder if those [high] room rates are sustainable,” he said.
People returning to their offices for at least several days a week is important for business travel because it helps to set up in-person meetings, he said.
The hotel industry can overcome a 10% to 15% deficit in revenue from corporate bookings, but it will be hard to make up for a greater loss than that, he said.
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